DS News

24 REPORT CRITICIZES GOVERNMENT TREATMENT OF BANKS A new Competitive Enterprise Institute (CEI) report digs into a controversial campaign by federal regulatory agencies called Operation Choke Point. In 2013, the U.S. Department of Justice (DOJ) and several other federal agencies the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) launched the ongoing investigation into U.S. banks pertaining to how they conduct business with certain types of orga- nizations, such as payment processors like payday lenders, believed to be at higher risk for fraud. In defense of the new initiative, Attorney General Eric Holder recently issued a state- ment vowing to "enforce the law against both the fraudsters who prey on consumers and the financial institutions who choose to allow these crimes to occur." In contrast, critics of the new initiative argue that it poses a potential threat to due process. ey assert the federal government is pressuring the fi- nancial industry to cut off the companies' access to banking services without first having shown that the targeted companies are violating the law. "Operation Choke Point targets perfectly legal industries by designating them high-risk, which in turn has a chilling effect on the willing- ness of banks to do business with them," said Iain Murray, author of "Operation Choke Point: What It Is and Why It Matters." He argues that the administration is not investigating fraudulent activity; it is investigating and targeting certain industries and asking banks to do its work for it. "Choke Point is the world's largest fishing expedition, and the administration is using it to create fear and uncertainty," Murray said. Murray was one of the first people to detail Operation Choke Point in a January National Re- view article. e report includes a comprehensive timeline of the development of Operation Choke Point dating back to 2011, as well as policy recom- mendations for Congress to rein in overzealous regulators. "Policymakers should weigh Operation Choke Point's few successes in stopping fraudsters against its significant adverse effects for American consumers," said Murray. "e primary victims are often low-income customers of legal busi- nesses who will lose the ability to access services they want, like, and rely upon. e Dodd-Frank Act has already made banking unaffordable for some, and now Choke Point is taking away mil- lions of unbanked Americans' only other means to finance their American Dream." Murray offers Congress a number of policy rec- ommendations to rein in Operation Choke Point. For example, he asserts that Congress should refuse to allow any funds to be used for Operation Choke Point unless the Attorney General requests funds through the appropriations process for the purpose of enhanced fraud deterrence. He also pointed out that in a six-month status report issued on September 9, 2013, the federal government acknowledged Operation Choke Point might be deterring banks from dealing with legitimate lenders. HOUSE FINANCIAL SER- VICES COMMITTEE SENDS FED REFORM BILL TO A FLOOR VOTE Congress fired off its latest rounds at the end of July in its ever-escalating battle with the Federal Reserve, as a Republican-controlled House committee passed a reform bill aimed at making the Fed more accountable and transparent. e Fed has already warned of serious trouble if the nation's top financial in- stitution were held to formal policy regarding its ability to set interest rates. e House Financial Services Commit- tee's effort to markup and vote on a series of six financial bills included the passage of a bill that requires the Fed to adopt a more predictable rules-based policy that it must share with the public, and to conduct a study to determine the appropriate capital requirements for mortgage servicing assets for banks. Other bills considered include requirements on federal agencies to ensure that new or modified financial regulations are efficient before they are introduced, and for the Government Accountability Office (GAO) to vet the Fed's Regulation D, which forces financial institutions to focus on compliance rather than spending time with consumers to meet their financial needs. e committee also approved a five-year reauthorization of the Native American Housing Assistance and Self- Determination Act as part of the package. In a press statement, FSC chairman Jeb Hen- sarling (R-Texas) said, "With millions of our fel- low Americans unemployed and underemployed, job number one continues to be jobs creation and economic growth. Our committee has approved dozens of bipartisan bills to help alleviate the red tape burden that Washington piles on job creators so all Americans can enjoy a stronger, healthier economy." Unsurprisingly, the Fed is wary of rules that dictate how it can set rates and other financial policies. Earlier this month, Federal Reserve Chair Janet Yellen fielded questions from Republican lawmakers about the policies that would be passed in the House two weeks later. Yellen told the lawmakers that "it would be a grave mistake for the Fed to commit to conduct monetary policy according to a math- ematical rule. No central bank does that." Her reasoning is that any infraction of any rule, no matter how tiny, could trigger a costly and wasteful audit by the GAO. Such a course of action, she said, "would essentially undermine central bank independence in the conduct of monetary policy."

• Cover